Employee Ownership – What are the benefits of this growing business structure?
Ensuring the continued success of your business after your exit can be a tricky task. Have you thought about the staff who share the company values and have extensive knowledge of your business practices? Could they continue your hard work?
In this article we’re looking at how granting part shareholding of your businesses to your employees could be an option to consider.
When exiting your business, there’s numerous ways you may do so. From totally selling up to a management buyout and succession planning to employee ownership, there are several routes you could venture down.
Employee Ownership (EO) is increasingly being considered as a viable exit option by owners who want to leave their business in trusted, capable hands. It’s a good alternative where a management buyout is not possible due to lack of funds.
This type of business structure is defined as when the staff within a company directly hold a majority of shares in the firm they’re employed by. Shares can also be owned on the behalf of the employees via a trust.
The most well-known example of this is the John Lewis and Waitrose Partnership. It’s the largest employee-owned business in the UK with a workforce of 83,900 Partners. This structure ties together a dedicated company ethos, whereby employees are involved in key decision making.
In the UK there are around 300 employee-owned businesses, with over 20,000 employee owners, spanning several industries. This is growing at a rate of 10% year on year. This structure or exit strategy is on the rise, likely due to the fact that co-owned companies perform better in terms of profitability and sustainability.
It might be a difficult concept to grasp that employees, who won’t necessarily have business management experience, could improve business performance in such a manner. There are several factors that contribute to the success of employee owned companies;
- High Standards – Recruitment or outsourcing is taken very seriously. Only employ those who have a vested interest in the success of your company and are in it for the long run. Whilst employees will benefit from this kind of ownership, this is about a shared success and not individual egos.
- Taking a Stake – As the name suggests, your employees own shares within the company. The success of the company determines the value of their shares and as such this will encourage loyalty and drive in the workforce.
- Getting involved – Aside from owning shares, companies who operate in this way involve their staff in key decisions. They’re run in a more open and honest way with less of a hierarchical structure.
What’s the Attraction?
There are several reasons why EO is the fastest growing form of business ownership. With the Employee Ownership Association (EOA) reporting that companies operating this way are more likely to be debt free, with a 3.3% increase in employees year on year and a 4.6% increase in sales year on year. Not to mention increased productivity levels along with increased EBITDA. In a recent article, from the FSB, Deb Oxley of the EOA (Employee Ownership Association) who describes the impact this has on businesses;
“Giving staff a stake in the business is the most powerful thing any employer can do”
She further describes the positive mental influence giving ownership to employees has, by encouraging more care and the realisation of the impact of their contributions. Employees get a sense of achievement from their roles and as a result are more highly engaged.
Does Employee Ownership help solve the skills gap?
A report from The Ownership Dividend found that more EO companies could improve the UK’s productivity ‘problem’.
SMEs have expressed concern that this business model may not suit businesses of a certain size yet there is a need for wider awareness of this option, particularly as part of an exit strategy.
Aside from the internal benefits on employees in terms of their performance, consumers also have a part to play. With 41% of consumers who took part in a survey agreeing that they’d be more likely to purchase from employee owned-firms.
What impact could Employee Ownership have on your business and its future? This is a useful option to consider for business owners who are looking to exit.
If you’d like further information on Employee Ownership, your accountant will be able to explain the benefits of this business structure or we can make an introduction to someone within our network.
If you are considering your exit options, we can provide you with your own value builder score. It takes 15 minutes to complete. You will receive your score immediately, and your Exit Timer will follow within 24 hours.